Pernod Ricard SA (RI) Earnings Call Transcript & Summary

Hello, everyone. Welcome to today's call on sustainability and responsibility at Pernod Ricard. [ S&R ] is a key driver for Pernod Ricard with its mission to create sustainable and responsible moments of conviviality. My name is Edward Mayle, Director for Investor Relations, and joined today by Maria Pia De Caro, EVP Integrated Operations and Sustainability; Noémie Bauer, Chief Sustainability Officer; and Morgane Yvergniaux, Global Head of Sustainable Terroir. We released this morning a video presenting details of our key S&R pillars and showing the progress being made in line with our commitments. This morning, we also announced the validation by SBTi of Pernod Ricard's carbon reduction targets in line with 1.5 degree Celsius climate scenario. Today, you can put your questions directly to our S&R team. And operator, we can now open the line for questions.

[Operator Instructions] The first question is from Edward Mundy with Jefferies.

I've got three questions, please. The first is on the supply chain. Look, a lot of CPGs really, Maria Pia, that you've worked out such as P&G [ modulator ] Unilever, have got a fairly optimized supply chain, a lot of platforming across the network, you have a lot of cross-border supply. But Pernod tends to be quite local valuing terroir in its production [ process]. How do you balance this, the importance of terroir with some of the best practices from other CPGs? And as part of that same question, there's obviously a big digital transformation taking place at Pernod. Is that coming through in the supply chain as well? That's the first point on the supply chain. The second question is around responsible hosting, which is a key priority for Pernod. We've seen from the World Health Organization a bit of a shift in emphasis from historically targeting [ harmful ] consumption towards sort of no-safe-level stance. Clearly, there's a lot you're doing already to promote the concept of responsible consumption, drinking less but better. But does this change the way you operate at Pernod and with the broad industry when it comes to responsible hosting? And then the third question is really around LTIP. I think social responsibility is 20% of the LTIPs. Could you just remind us how that's filtered down through the rest of the business on an annual basis? Thank you.

I'll give the floor for your first question to Maria Pia.

Thank you. It's a wonderful question, actually. And I think it allows us to also explain how the strategy for integrated operations [ merits ] the strategy of sustainability for Pernod Ricard. We have had an incredible success as an enterprise by working with a decentralized model. Now this approach has served us extremely well for close to 50 years. Now as we continue to grow and our business continues to expand, we have realized that we actually need to take the best of the other CPGs, so to say. Indeed, I worked for some of the most prestigious companies in my past. So we need to take some of the best practices of these other strategies and integrate them smartly and efficiently in the technology in the Pernod Ricard model. One of the things that we have done for operations, we have actually called it integrated operations to drive this principle of connecting the different parts of the business while maintaining the focus and the attention, the preciousness of the local values, of the local brands or the local terroir. So what we said is that as integrated operations, where we are to unlock potential, we unlock potential across 3 vectors: the vector of creating a sustainable, superior production. So sustainability is an integral part of that, together with R&D and together the quality we make. So we continue looking at all our operations that we are actually becoming more explicit, if you like, at what are the operations that we want to make more efficient or we want to connect better to drive more value for the enterprise. And then we want to be more agile. And again, this concept of integration, so leveraging the strength of a decentralized organization, but building on a joint [ wagon ]. So what I'm trying to say, in fact, is that, yes, we are very proud of our local specificities, but we see it [ organizable ], if you like, as we see that it's perfectly possible to still maximize scale by making sure that we have common approaches, common capabilities, common KPIs to drive the maximum value for Pernod Ricard or as we say in operations, to unlock potential for Pernod Ricard.

Thank you, Maria. For your second question regarding the no safe level of alcohol, this claim has been contradicted by scientific research for [ Brazil ]. We believe that when [ recent ] scientific research that moderate drinking can be part of a healthy lifestyle. We believe that everyone should avoid using it in excess. And this is why the local government provide guidelines to drink in moderation. And we are very proud to be displaying a QR code providing information for consumers that we call the digital label to make sure that consumers can actually make informed choices and follow those drinking guidelines. For your third question on LTIP. For LTIP, we have nearly 20%, which is related to S&R. And we provide LTIP to about [ 500 ] people within the company. We have internal vending, and it's from [indiscernible].

And just on my first question, if you could provide some more sort of examples of some of the common approaches and some of the KPIs to drive that maximum value for Pernod as you get that balance between what you've seen in some of the other CPGs and what you're seeing at Pernod, where you're obviously protecting the decentralized nature of [ production ].

I will give the floor to Maria Pia.

Yes. It's a good question. I have so many examples coming to mind that I need to think of the best one. If I can take the question back to the point I was making, what we [ seek ] is that maximizes the value of global and local. We said in a very clear view of what we want to achieve. So as an example, if I want to optimize water in my operations, the first step is to understand who are the greatest contributors of water. So in our case, there is a portion of that, a sizable portion of water that is coming from terroir. Another portion of water came from the [ distillers ]. So this is the first statement. So you look at your key driver, your [ stated KPI ]. Then you look at both of the key drivers that you can leverage to optimize that measures because that [ spot ] is important to you. And then it doesn't really matter if you have 1, 2, 10, 100 units because the approaches, the way to measure, the competencies of your team will be the same, very similar. And therefore, by highlighting what are the key goals, prioritizing them, identifying what are the key strategies for execution and implementing those with 3 words that are very dear to our CEO, with simplification, with empowerment and the discipline allows then a company, be it a centralized company or a decentralized company, to quickly progress on the action plan. Now this also means, if you like, that some of the strategies will drive definite [ scale ]. Now, in my drive -- not so water necessarily, but if I take a procurement of [ series ] or procurement of components that where in the past, we might extend to do things in different units, we have now common [ backbone ] or we are progressing towards the common [ backbone ] approach and again, a more integrated organization to maximize the value. So I would say, the best way to reapply the power of the large companies, the P&G, the Unilever that you mentioned, to the central or historically decentralized model like Pernod Ricard is to be very clear [ on board ], very clear on strategy, very clear on resources and the competencies that you need to unlock. You get it right, then you can unlock the value.

The next question is from Trevor Stirling with Bernstein.

Two questions on my side, please. The first one, I was intrigued in the video by the Swedish farmer who hadn't ploughing his field for 20 years, that's a radically different approach from the traditional approach of breaking up the soil with ploughing and harrowing. And I can see how that works for your direct contract in the farmers in Southern Sweden. If you think about something like, say, scotch, where you're getting barley from suppliers, from [indiscernible] and its indirect approach, can that regenerative approach also work for volumes in Scotland? That's the first question. And the second one, first, more broadly, you mentioned that you're refreshing your strategy for next year for 2025. I appreciate it's very early, and you can't preempt what the conclusions will be. But are there any broad aspects that you can share with us where you'd listen to refresh and upgrade the strategy?

Thank you. So for your first question, I'll give the floor to Morgane.

Thank you. And thank you for your question that allow me to explain you our global regenerative [ agricultural ] vision, which is a holistic approach that embed every impact, not only focus on carbon and soil, but also on biodiversity and water and [indiscernible]. So what we can do with our Swedish farmers is that fit the best to this local context, considering the local climate and the local type of soil, local farmer [ center ]. And this is specific framework. What we can do in Scotland is under the same umbrella, regenerative [ agriculture ], but more suitable for Scottish terroir that, for example, we can implement [indiscernible] crop in Sweden but we cannot implement cover crops in Scotland, considering a huge amount of rain, for example, during the season. So it's a global umbrella. And so coming back to the first question about the best balanced model between our different locations, so it's from a global perspective into local adaptation. So we have this global vision that allows to pick and choose the right set of practice or the right set of mitigation and adaptation practices into the local context and then allow us to contract directly with the farmers, considering their capacity to deliver or ambition.

Thank you. And for the second question on the refresh of the strategy, so I can already share that there are 3 main categories of reasons why we are refreshing. The first being in 2025, it's the milestone of our road map. Our road map goes in [ just '23 ]. But in 2025, there are some goals that are -- that have the deadline. So we'll check out what goal has been achieved. And some goals have been achieved before 2030. I can give you an example of the Bar World of Tomorrow, where we have a goal to reach 10,000 bartenders by 2030, and we already trained more than [ 12,007 ] bartenders. So we're going to adapt the strategy with this kind of [ reason ]. The second one, the new framework. We launched a strategy in 2019. Since then, the world has evolved. And I can give you the example of [ SVTM ], a science-based target for nature that did not exist in 2019. And this is the kind of framework that will take into account in the refreshed strategy. And the third, the corporate sales [indiscernible]. The [indiscernible] has many topics that are listed by the [ directors ], and we just finished a [ double ] majority metrics. And so in the refresh of the strategy, we will make sure that we address all of the material topics for the group.

The next question is from Jeremy Fialko with HSBC.

So a couple of packaging-related ones for me. So you talked on the webcast about ecoSPIRITS and the huge reductions that get in terms of packaging way. So perhaps you could talk about, I suppose, what are the main obstacles to getting this rolled out, given the, I guess, big savings that it has and what you think the longer-term potential of that is? And then the second one, I was reading an article about paper bottles. And that's something which, again, you've been trialing. Could you talk about those, again, what are the main impediments? And how you think that they can play a role within your portfolio or at least the packaging mix of your business?

Thank you. So for the first question on ecoSPIRITS, it's indeed a solution that can help us address more than 90% of waste and also up to 80% CO2 reduction. So this solution is very positive. We have been trying to extend this [ pilot initiative ] in countries to a global agreement that will come shortly. So I'm very happy to say that just be patient. Very shortly, something positive will be announced. But the obstacle that we are still facing are because we see a change of mindset. We are changing from a linear way to distribute our products to a secular one. We're going to have reverse logistics, have the [ bar ] trends as well in how they can use this 4.5 liter tank instead of regular bottle. So the change of mindset and the transformation is the main obstacle. But very shortly, we will expand this solution. Regarding your second question on paper bottle, so we have been trying in the U.K. right now. And to tell you about the main obstacle, it is research and development because the paper bottle is about plastic inside the paper bottle. And we are investing together with other companies such as L'Oréal or P&G to improve the R&D and have the plastic liner as thin as possible. And the goal of the R&D is to make sure that the full plastic and paper bottle will be recyclable through the paper stream. And so this takes time, and that's why we are taking time to deploy it further. And Maria Pia would like to add something.

And I think packaging, it's a wonderful question, and it's a wonderful opportunity for our industry because there are recyclable models like ecoSPIRITS. And as Noémie told you, stay tuned of -- we are very happy about what can be done with that model. On the paper bottle, it's a definitely a technological route. But as Noémie explained, the alcohol properties are such that you need to make sure that you prevent the transmission, the migration of the alcohol through this membrane what is peeling this coating that you have on the paper. That makes it a challenge, but it is not the only way to packaging. So I think the subject of future of packaging and having research with marketing and continuing to evolve the consumer wellness through packaging, it's an extraordinary opportunity for sustainability. At Pernod Ricard, we have also been working, as an example, in India on recycling bottles. So not just ecoSPIRITS in bars or pubs or hotels, but more broadly in the country, which is extraordinary because the challenge of glass, it's that glass is a wonderful material because it is [ inert ] that it takes a lot of energy to produce; while if you use it multiple times, that impact will be greatly reduced. But also in that case, R&D, customer [ route ] market strategies, the readiness of the countries to create this recycling is essential because what you might want to do on the research and development side is actually improve the property of the glass by making it more resilient because on one side, you want to light weight it. And on the other side, you may want to reuse [indiscernible]. So all of those challenges combined makes sense that the packaging and the future of packaging is one of the most exciting areas in a company like ours can truly play a role and a good role for the consumer, a good role for the customer and a good role for the planet.

The next question is from Richard Withagen with Kepler.